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By: W.

Chan Kim & Renee Mauborgne

Summary by: Jesse Starmer COM 459

Value Innovation
Value innovation is created in the region where a company’s actions favorably affect both its cost structure and its value proposition to buyers. Cost savings are made by eliminating and reducing the factors an industry competes on. Buyer value is lifted by raising and creating elements the industry has never offered. Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates.

Costs

Value Innovation

Buyer Value

Value Innovation

Exploit existing demand. In the reconstructionist world. differentiation costs because firms compete with the same best-practice principle.
Make the competition irrelevant.
Beat the competition. Make the value-cost trade-off. the strategic aim is to create new best-practice rules by breaking the existing value-cost trade-off and thereby creating blue ocean.Red Ocean Versus Blue Ocean Startegy
In the red ocean. Break the value-cost trade-off. the strategic choices for firms are to pursue either differentiation or low cost.
Blue Ocean Strategy
Create uncontested market space. however. Here. Align the whole system of a firm’s activities in pursuit of differentiation and low cost. Align the whole system of a firm’s activities with its strategic choice of differentiation or low cost. Create and capture new demand.
Red Ocean Strategy
Compete in existing market space.
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It captures the current state of play in the known market space. This allows you to understand where the competition is currently investing. and what customers receive from the existing competitive offerings on the market. service. The vertical axis captures the offering level that buyers receive across all these key competing factors. the factors the industry currently competes on in products.
High
Low
Price Wine range Vineyard prestige Use of Above-the-line enological marketing Aging and legacy Wine quality complexity terminology
. The value curve then provides a graphic depiction of a company’s relative performance across its industry’s factors of competition. The horizontal axis captures the range of factors the industry competes on an invests in.Strategy Canvas
The strategy canvas is both a diagnostic and an action framework for building a compelling blue ocean strategy. and delivery.

Strategy Canvas
High
Low
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. the grid provides four immediate benefits: it pushes them to simultaneously pursue differentiation and low costs. It answers the four key questions of what industry takes for granted and needs to be eliminated. makes it easier for managers to understand and comply. what factors need to be reduced below industry standards. what factors need to be raised above industry standards. raising. reducing. and it drives companies to scrutinize every factor the industry competes on. By driving companies to fill in the grid with the actions of eliminating. and what should be created that the industry has never offered. identifies companies who are only raising and creating thereby raising costs.Four Actions Framework + Eliminate/Reduce/Raise/Create Grid
The four actions framework offers an technique that breaks the trade-off between differentiation and low cost and to create a new value curve. and creating.
Reduce
Which factors should be reduced well below industry standards?
Eliminate
Which of the factors that the industry takes for granted should be eliminated?
A New Value Curve
Create
Which factors should be created that the industry has never offered?
Raise
Which factors should be raised well above the industry’s standard?
Eliminate Enological terminology and distinctions Aging qualities Above-the-line marketing Reduce Wine complexity Wine range Vineyard prestige
Raise Price versus budget wines Retail Store involvement
Create Easy drinking Ease of selection Fun and adventure
The eliminate-reduce-raise-create grid pushes companies not only to ask all four questions in the four actions framework but also to act on all four to create a new value curve.

•See which factors you should eliminate. visual strategy fair. Visual Awakening 2. •Observe the distinctive advantages of alternative products and services. 1. and noncustomers. Visual Strategy Fair 4. and visual communication.
•Distribute your beforeand-after strategic profiles on one page for easy comparison. competitors’ customers. or change.Four Steps of Visualizing Strategy
The four steps of visualizing strategy builds on the six paths of creating blue oceans and involves a lot of visual stimulation in order to unlock people’s creativity. The four steps include visual awakening. Visual Communicatio n
•Compare your business with your competitors’ by drawing your “as is” strategy canvas. visual exploration.
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•Draw your “to be” strategy canvas based on insights from field observations. •Get feedback on alternative strategy canvases from customers. •See where your strategy needs to change
•Go into the field to explore the six paths to creating blue oceans. Visual Exploration 3. •Support only those projects and operational moves that allow your company to close the gaps to actualize the new strategy. •Use feedback to build the best “to be” future strategy. create.

Pioneer. These are classified accordingly with the highest growth potential being pioneers. Settler. then to migrators.
Pioneers
Migrators
Settlers
Today
Tomorrow
. This strategy can help a company determine which businesses experience the highest and lowest growth and cash flow. Migrator Map
A corporate management team pursuing profitable growth can plot the company’s current and planned portfolios on a pioneer-migrator-settler (PMS) map. then to the lowest rung. settlers.

First Tier Your Market
Second Tier
Third Tier
. The first tier of customers minimally buy an industry’s offering out of necessity.Three Tiers of Noncustomers
There are three tiers of noncustomers that can be transformed into customers. The third tier are noncustomers who have never thought of your market’s offerings as an option. The second tier of noncustomers refuse to use your industries offerings. They differ in their relative distance from your market.

Three Tiers of Noncustomers
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If an idea receives a no at any point. potential blue ocean ideas must pass through a sequence of buyer utility.Rethink
An important part of blue ocean strategy is to “get the strategic sequence right. the company can either park the idea or rethink it until you get a yes. In this model. and adoption.” This sequence fleshes out and validates blue ocean ideas to ensure their commercial viability.
Yes
Price
Is your price easily accessible to the mass of buyers? No-.Rethink
A Commercially Viable Blue Ocean Idea
. price. in which case the idea may pass to the next step.Rethink
Adoption
What are the adoption hurdles in actualizing your business idea? Are you addressing them up front? Yes
No-. This can then reduce business model risk. or “no”. cost. At each step there are only two options: a “yes” answer.Sequence of Blue Ocean Strategy
Buyer utility
Is there exceptional buyer utility in your business idea? No-.Rethink Yes
Cost
Can you attain your cost target to profit at your strategic price? Yes No-.

It outlines all the levers companies can pull to deliver exceptional utility to buyers as well as the various experiences buyers can have with a product or service. Purchase 2. The Six Stages of the Buyer Experience Cycle
1. Supplements 5. Delivery 3. Use 4. Disposal
Customer Productivity
The Six Utility Levers
Simplicity
Convenience
Risk
Fun and Image Environmental friendliness
.Buyer Utility Map
The buyer utility map helps managers look at this issue from the right perspective. Maintenance 6.

how costly are they? How much time do they take? How easy are they to obtain? Maintenance Does the product require external maintenance? How easy is it to maintain and upgrade the product? How costly is maintenance? Disposal Does use of the product create waste items? How easy is it to dispose of the product? Are there legal or environmental issues in disposing of the product safely? How costly is disposal?
How secure is the transaction environment?
How rapidly can you make a purchase?
Do buyers have to arrange delivery themselves? If yes. At each stage. running more or less sequentially from purchase to disposal.Buyer Experience Cycle
A buyer’s experience can usually be broken into a cycle of six stages. Each stage encompasses a wide variety of specific experiences.
Purchase How long does it take to find the product you need? Is the place of purchase attractive and accessible? Delivery How long does it take to get the product delivered? How difficult is it to unpack and install the new product? Use Does the product require training or expert assistance? Is the product easy to store when not in use? How effective are the product’s features and functions? Does the product or service deliver far more power or options than required by the average user? Is in overcharged with bells and whistles? Supplements Do you need other products and services to make this product work? If so. managers can ask a set of questions to gauge the quality of buyer’s experience. how costly and difficult is this?
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Purchase Delivery Use Supplements Maintenance Disposal
Customer Productivity: Simplicity: Convenience:
In which stage are the biggest blocks to customer productivity? In which stages are the biggest blocks to simplicity? In which stage are the biggest blocks to convenience?
Risk:
In which stage are the biggest blocks to reducing risks?
Fun and Image:
In which stage are the biggest blocks to fun and image?
Environmental Friendliness:
In which stage are the biggest blocks to environmental friendliness?
.Uncovering Blocks to Buyer Utility
Uncovering blocks to buyer utility can identify the most compelling hot spots to unlock exceptional utility. By locating your proposed offering on the thirty-six space of the buyer utility map. and whether the new idea not only creates a different utility proposition from existing offerings but also removes the biggest blocks to utility that stand in the way of converting noncustomers into customers. you can clearly see how.

Price Corridor of the Mass
This tool helps managers find the right price for an irresistible offer. same function Different form and function. same objective
Step 2: Specify a price level within the price corridor.
Step 1: Identify the price corridor of the mass. isn’t necessarily the lower price.
High degree of legal and resource protection Difficult to imitate Some degree of legal and resource protection Low degree of legal and resource protection Easy to imitate
Price Corridor of the Mass
Mid-level pricing
. The tool involves two distinct buy interrelated steps. Three alternative product/service types:
Same form Different form. The second step deals with specifying a level within the price corridor which factors in legal protection and exclusive assets. by the way. which. The first step involves identifying the price corridor of the mass which deals with customer price sensitivity and pricing strategies of products offered outside the group of traditional competitors.

same function Different form and function.Price Corridor of the Mass
Step 1: Identify the price corridor of the mass.
High degree of legal and resource protection Difficult to imitate Price Corridor of the Mass Some degree of legal and resource protection
Mid-level pricing
Low degree of legal and resource protection
Easy to imitate
. Three alternative product/service types:
Same form Different form. same objective
Step 2: Specify a price level within the price corridor.